By Mary Jordan and Kevin Sullivan

Irma Osorio Soriano crouched on the muddy ground outside her shack washing dishes in soapless gray water. A dreamy look came into her eyes as she imagined the luxurious trappings she doubts she will ever afford: "A refrigerator and a TV," she said, scrubbing in hard circles. "And a big radio."

Osorio, 30, wanted to keep going to school after she turned 14, but she couldn't afford not to work. So she cleans offices. As she pockets $2.50 a day, her childhood hope of being a nurse has vanished into an adulthood of day-dreaming about unattainable appliances.

Osorio is in the majority in Mexico: she was born in poverty and she sees no way out. "Life is hard," she said. "There is no use hoping."

Despite the assurances of four presidents that Mexico was moving up from its Third World status and a landmark free trade agreement with the United States that was to have enriched the country, the number of people living in poverty has soared over the past two decades.

While the percentage of poor Mexicans is about the same now as it was in the early 1980s -- a little more than 50 percent -- the population has grown over the same period, from 70 million to 100 million. That means about 19 million more Mexicans are living in poverty than 20 years ago, according to the Mexican government and international organizations. About 24 million -- nearly one in every four Mexicans -- are classified as extremely poor and unable to afford adequate food.

President Vicente Fox last week called poverty "the biggest problem confronting Mexico." His government estimates that a total of 54 million of the country's 100 million people live in poverty, unable to meet basic needs.

"Mexico is worse off today than it was 20 years ago in almost every way -- except democracy," said Gabriel Guerra Castellanos, a political analyst, who called it "a disgrace" that so many Mexicans were still mired in poverty.

At the same time, Mexico has grown richer. Its $600 billion economy is now the world's ninth-largest. Trade volume has nearly tripled since the 1994 North American Free Trade Agreement (NAFTA), placing Mexico ahead of Britain, South Korea and Spain as a trading power.

Mexico's state-run oil monopoly, Pemex, is one of the world's largest oil companies. Beaches from Los Cabos to Cancun draw 20 million tourists a year, making the country one of the world's 10 premier vacation destinations.

The paradox haunts Mexico: With so many advantages, why are so many of its people still so poor?

First, two major economic crises since the 1980s have hampered overall growth, halted the creation of new jobs and pushed large numbers of the lower middle class into poverty.

Mexico's weak public education system condemns workers to low salaries in a global economy where skills count. Decades of systemic government corruption have robbed the poorest of everything from high school scholarships to subsidized milk. The broken banking system hands out little credit -- people without the cash to buy a house or start a small business must often do without.

Mexico's inability to enforce the rule of law also discourages the investment needed to create jobs.

Jorge Castañeda, Fox's foreign minister until January, said investors were repelled by images of angry farmers riding their horses into the halls of Congress and anarchists successfully killing a $2 billion airport project with machetes and firebombs. They see kidnappings, impunity, corruption and legal structures so anemic that little crime is ever punished.

"It is a state of disorder," Castañeda said. "This cannot go on."

But what has become painfully clear in Mexico is that free trade -- most famously NAFTA -- has failed to lift the country out of poverty.

Starting with Miguel de la Madrid, president from 1982 to 1988, a succession of Ivy League-educated presidents bet on a formula intended to create prosperity for all. They advocated opening Mexico's markets, making government smaller, and decreasing its involvement in agriculture and industry.

"There was heavy reliance on a rising tide carrying all boats," said Guerra, who served as spokesman for two presidents in the 1990s. "Well, free-market policies have done nothing to alleviate poverty."

Instead, such policies have helped the upper classes and widened the divide between rich and poor. Studies show that the richest 10 percent now control about half of the country's financial and real estate assets. Most of those who are extremely poor live in rural areas. Government figures show that more than 40 percent of Mexicans in rural areas earn less than $1.40 a day, unable even to feed themselves decently. As a result, people are bailing out of the countryside as if it were a ship on fire.

Mexico's rural population is less than half the size it was in the 1950s. Government surveys show that between 400 and 600 people a day are packing up fleeing to cities or to the United States.

Alberto Gomez, an influential farmers' leader who recently organized a march on the capital by tens of thousands of farmers, said the situation was desperate. "We don't want to come to the city and we don't want to emigrate to the United States. But people have no money," said Gomez, head of the 180,000-member National Union of Agriculture Organizations.

Gomez and many politicians blame much of their problem on NAFTA, which they say bankrupted Mexican farmers who cannot compete with their heavily subsidized, more technologically advanced U.S. counterparts. While a boon to the maquiladoras, or factory workers, and a blessing to certain bigger farmers, NAFTA has inflicted more pain on already ailing small farmers, most economists and analysts here agree.

Beginning in the 1980s, the government began systematically withdrawing subsidies and aid to the countryside, partly because a severe financial crisis strangled the budget, and partly because it believed that free market reforms would ultimately strengthen the sector.

Money for irrigation, crop storage facilities, government agricultural research and fertilizer was virtually zeroed out. Price supports were reduced. According to Jose Luis Calva, an economist who specializes in rural Mexico, government aid to the countryside has dropped 95 percent since 1982. At the same time, the value of some of the most important Mexican crops, including corn, beans and coffee, has fallen as worldwide production has risen.

Early this year, campesinos, or peasant farmers, began forcing their crisis onto Fox's agenda, raising their machetes in anger and blocking key highways. As a result, Fox set up a "national dialogue" in which thousands of farm leaders from groups with names such as "The Countryside Can't Stand More" described their pain and problems. The Fox government is now drawing up a plan to address them.

As the poor abandon the countryside, urban poverty has grown. In Mexico City, thousands of men, women and small children beg on street corners. More sleep under bridges, along polluted riverbanks or in makeshift shacks in parks. Government officials usually ignore what are known as land invasions, because these destitute people have nowhere else to go.

There are 135 shacks in a squatter camp called the "City of Refuge" in Mexico City's Iztapalapa neighborhood. Residents there steal electricity with pirated lines and illegally tap rudimentary sewer lines into the city sewer system. They live under cardboard roofs that soak through in the rainy season.

"Poverty drowns the hope and dreams of our youth. Poverty gives rise to exclusion, hate and conflict," Fox said in January at the World Economic Forum in Davos, Switzerland. "We must recognize that market rationale is not enough to solve the problem of poverty."

Encouraged by the Fox government, private micro-credit institutions are lending small sums to poor people who want to sell hand-made clothes, crafts and other items. But these loans reach only a small percentage of the poor. The Fox government itself has little money to launch a new assault on poverty. In the last two years, the country has had zero or near-zero economic growth and hundreds of thousands of jobs have been lost.

Next month, the government plans to launch a new program, Habitat, to combat urban poverty. Rather than offering handouts, the program is intended to provide financial rewards for participation in school and health clinics and also urges people to work. A centerpiece will be the building of 1,000 childcare centers to help single mothers find and keep jobs.

Critics say Fox's focus on the cities, the center of his political base, is influenced by politics. His National Action Party, or PAN, faces pivotal Congressional elections this summer.

Angel and Francisca Martinez don't care about that; they just want something to eat. The young couple -- he's 22, she's 19 -- moved to Mexico City a month ago from a corn-farming village on the border between the states of Oaxaca and Veracruz. Now they and their girls, ages 2 and 4, wander through traffic downtown in plastic sandals, selling penny candy from plastic bags.

They earn about $100 in a good month. They rent a single room for $70 a month, which leaves them $30 to live on. There's never enough to eat, the children wear little more than rags, they get no government benefits. It's a hard life in the city, Angel said, but he'd never go back to his village.

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